Gibbs: Deepwater Horizon Aftermath Could Affect Next Lease Sale

The review of the Deepwater Horizon rig disaster ordered by President Barack Obama could affect future Outer Continental Shelf leases, including the next Gulf lease sale in August, White House Press Secretary Robert Gibbs said Friday. Gibbs also said the review may impact the development of the administration's new five-year OCS drilling plan.

Obama, at the White House earlier Friday, ordered the Department of Interior to have the Deepwater Horizon report to him in 30 days. The president also said domestic oil production remains "an important part" of US energy security, but must be done "responsibly." The Minerals Management Service is slated to hold the Western Gulf of Mexico Lease Sale 215 on August 18 in New Orleans.

Two top federal officials urged to take more aggressive action on stopping a runaway oil well in the Gulf of Mexico but fell short of offering specifics about what else they expect the British major to do.

"We urge BP to lend additional assets," said Janet Napolitano, who heads the US Department of Homeland Security. "It is clear that it is time for BP to supplement their current mobilization as the slick of oil moves to shore." She spoke at a press conference that followed a summit meeting near New Orleans that included US Interior Department head Ken Salazar and BP's chief of operations for American E&P, Doug Suttles. Their visit included an overflight of the spill.

Although not openly contentious, the tone of the press conference hinted at signs of frustration and a tougher stance toward BP by government officials. Asked if she is critical of BP's efforts and invited to suggest actions she wants the major to take, however, Napolitano paused, reviewed BP's actions to date and said: "I share the disappointment of all that none of those worked."

Ongoing inspections of deepwater oil and gas facilities in the US Gulf of Mexico will cover 30 drilling rigs and 47 production platforms, Salazar said. Salazar, in a statement, said the rig inspections will be completed within seven days, after which a review of production platforms will begin. Salazar also ordered the creation of the Outer Continental Shelf Safety Oversight Board to review safety measures on OCS drilling rigs and production platforms.

Fighting and reacting to the spill

BP said the use of underwater dispersants would begin late Friday afternoon after the company received approval from federal authorities. Officials hope the dispersants can break up the oil as soon as it flows from the well so to prevent sheening on the surface.

BP also is trying another experimental approach through fabrication of a dome-like containment device to divert oil at the wellhead on the sea bed. Suttles said another drillship is on its way to assist in that effort or help with the relief well if needed.

BP's chief of operations for American E&P, Doug Suttles, has warned that the containment concept has never been tested at these water depths either and said it might be three more weeks before it is ready to test. "We've mounted the largest response effort ever done in the world and utilized every technology available," Suttles said in his company's defense. "We understand that we need to bring this event to closure as soon as possible."

Suttles also addressed reports that independent experts have estimated the leakage at a level possibly four or five times greater than the 5,000 b/d estimate currently used by BP and the US Coast Guard. In response to a question about that discrepancy, he described the estimate of oil flow from the well as "imprecise."

Halliburton Friday said it had not installed the final cement plug on the Macondo exploration well before the April 20 explosion aboard the Deepwater Horizon. Halliburton also confirmed it had completed the cementing of the final production casing string "in accordance with well design approximately 20 hours prior to the incident."

Lawsuits against BP, Transocean and other companies linked to the well or rig are mounting, including a suit from shrimp fishermen who could face major losses.

As the oil slick moved closer to shore, the governor of Florida declared a state of emergency in several Panhandle coastal counties ahead of possible landfall. Louisiana Governor Bobby Jindal asked the US Department of Commerce to declare a commercial fisheries failure and provide financial support for fishermen in his state.

Authorities in Alabama implemented restrictions in the port of Mobile so vessels leaving or entering the port do not come into contact with the oil slick.

Impact on the companies

BP is facing potential containment and clean-up costs of more than $3 billion for the massive oil leak, according to an estimate by Fitch Ratings. BP has said the effort is costing owners of the well about $6 million per day.

Share prices for the five companies connected most directly to the Deepwater Horizon disaster have taken their lumps since the April 20 event, with analysts watching the ticker closely April 30. A review of closing New York Stock Exchange prices for those companies from April 19 to April 30 shows Macondo field operator BP off 12%, Macondo field partner Anadarko Petroleum down 15.2%, rig operator Transocean down 18%, blowout preventer supplier Cameron International off 11.9% and well cementer Halliburton down 2.9%. Although Halliburton had gained from the day before the incident through April 28, the company's shares took a steep 5% drop on April 29 with news about the roles of the companies gaining wider attention.

Analysts were grasping for historical comparisons in an effort to project the potential impact in the event of increased environmental costs. Several reviewed the financial impact of the the infamous Exxon Valdez oil spill in Alaska 20 years ago for a guidepost.

"The current Gulf of Mexico spill could conceivably approach the Exxon Valdez in terms of size," wrote Bernstein Research analyst Neil McMahon in a report on BP's vulnerability. His "worst case" cost scenario weighs in at $12.5 billion for the partnership, which includes BP as operator with 65%, Anadarko as a 25% stakeholder and Japan's Mitsui with the remaining 10%. "The cost for BP will be heavily influenced by how much oil reaches the Gulf coast and potentially Florida's Paradise Coast," McMahon wrote in his report.

"The potential disruption of oil tanker traffic in the US Gulf of Mexico is already having an impact on oil prices," the analysts said. "Both WTI timespreads and the WTI-Brent spread tightened substantially on news that waterways surrounding the Louisiana Offshore Oil Port (LOOP) could be blocked by the spill as early as Friday, and traffic of oil service boats and oil tankers through the Gulf will likely be slowed."

Background

An explosion ripped through the Deepwater Horizon drilling rig in the Gulf of Mexico on April 20, killing 11 of the 126-person crew. A fire raged for about 36 hours before a second blast sank the rig on April 22. The well's blowout preventer failed to activate, resulting in an oil leak that officials currently estimate is occurring at a rate of about 5,000 b/d. The rig was working BP's Macondo prospect in 4,993 feet of water, about 40 miles offshore Venice, Louisiana. BP operates the well and own a 65% stake; partners include Anadarko (25%) and Japan's Mitsui (10%).